North American auto suppliers might soon be merger or acquisition targets of a Chinese automotive supplier looking to gain a stronger footprint in the U.S. auto industry at bargain-basement prices.
As for the size, it may be a very small firm, up to a very large firm said Jeff Zhao, general manager of Summitech Engineering Inc., not ruling out publicly traded tier-one suppliers. It depends on what kind of company and the core value of the company.
Chinese investment was the focus at a recent meet-and-greet event Tempo International Group, the parent company of Summitech, hosted in suburban Detroit on Jan. 9.
In attendance was Beijing's vice mayor, who expressed his city's interest in supporting Chinese investment in Detroit companies.
Also attending was Wayne County, Mich., Executive Robert Ficano, local economic development leaders, Beijing municipal officials and area auto industry executives.
Tempo International holds three local automotive firms in western Wayne County. Zhao said Tempo is looking for M&A deals to be done either through one of the local affiliates, a yet-to-be formed subsidiary, or a possible consortium of buyers, depending on the deal.
The main mission of the vice mayor of Beijing on Friday was to say, "We are ready to come and invest and buy companies or do joint ventures with suppliers. We have money we can bring in. You have equipment, manpower and technology, and we want to invest and be suppliers to the Big Three,' said Mulugetta Birru, a private consultant working with Ficano's office to help drum up Chinese business in Wayne County.
Ficano and Birru have gone on several Chinese trade missions.
Birru said their efforts helped bring Chinese automakers BYD Automotive Co. and Brilliance Jinbei Automotive Co. to the Detroit auto show.
Tempo also located a subsidiary, Century Automotive Manufacturing Inc., in suburban Detroit after Ficano and the Detroit Regional Chamber went on a trade mission to China in 2005. Ficano said Beijing's vice mayor and staff held meetings with Ficano's office during their visit two weeks ago and toured local company sites.
The recent event was a more formal pitch about investing in local companies, and representatives from the Detroit 3 and local auto suppliers attended.
Basically, Beijing (municipal government) wants to go through Tempo Group. Tempo is the one that already has an R&D base in Wayne County, Zhao said.
Beijing government will support us, but the efforts will be our efforts.
Walter Bud Aspatore, chairman and co-founder of investment banking firm Amherst Partners LLC, said that while the Chinese have been sniffing around Detroit for some time, it has mostly been tire-kicking, with no major deals coming to fruition.
But to the extent that companies continue to be in trouble given the volume reductions we've seen, that could put more of the companies in play and make it more attractive for the Chinese to want to do something, Aspatore said. The atmosphere is right if they want to do transactions.
Publicly traded suppliers could be had right now at bargain prices. Many large tier-one suppliers have seen their stock prices erode, sometimes by more than 90 percent during the last 12 months.
ArvinMeritor Inc., American Axle & Manufacturing Holdings Inc., Amerigon Corp., Federal-Mogul Corp., Hayes Lemmerz International Inc., Visteon Corp., Lear Corp. and TRW Automotive Components Inc. also have seen their market capitalizations decline between 80 percent to more than 90 percent since their last full-year financial reports.
Companies that offer advanced technology and manufacturing processes most likely would be targeted, Aspatore said.
Acquiring a supplier could offer Chinese firms an immediate presence to supply the Detroit 3 and foreign automakers as well as access to technology, manufacturing processes and executive experience.
Birru said Beijing city government will soon open an office in Wayne County with a dedicated official to identify specific supplier targets for acquisition, and that Beijing municipal officials feel the time is right to invest in the U.S.
But Aspatore said only time will tell if it is the real deal, or just talk.
Often times, their (Chinese government) appetite is bigger than their ability to do something, and when they get in and take a look at what's involved they back away a little bit, said Aspatore, who has done six global acquisition deals for Chinese firms, most recently 18 months ago.
But the climate is right, and I think if there's ever going to be activity, it's going to be in the next 12 months.
A delegation of Beijing officials is scheduled to come to Detroit in April to meet with auto suppliers that are potential acquisition targets.
One of the hard things in the automotive industry is to have a network set up, especially in the biggest market, which is still the United States, Ficano said.
This would jump-start that.
Automotive News reporter Alysha Webb contributed to this report